Graphic: Mint
Graphic: Mint

June quarter results signal Havells India is off to a bright start this fiscal

So far this financial year, Havells India shares have appreciated by about 15%, valuations, though, suggest much of the optimism is baked into the price

The June quarter was a bright one for electrical equipment maker Havells India Ltd. Net revenue (excluding contribution from Lloyd’s consumer durables business, acquired in the June 2017 quarter) for the quarter increased 19% over the same period last year to 1,888 crore.

A favourable base has helped. Last year’s June quarter was adversely impacted by the goods and services tax (GST) transition. Additionally, Havells had completed the acquisition of Lloyd Electric and Engineering Ltd’s consumer durable business during the June 2017 quarter.

Havells’s June quarter performance last year included Lloyd’s numbers for 50 days. To that extent, the performance is not comparable. According to Havells, revenues for the Lloyd business grew by 14% on a like-to-like basis, better than Street expectations.

Havells continues to invest in the Lloyds brand with an advertising and sales promotion (A&P) spend of 7% of revenues for Lloyds in the June quarter, pointed out Dolat Capital Market Pvt. Ltd. “While Lloyds made 19% Ebit margins in a seasonally peak quarter, the reinvestment in brand through higher A&P spend is visible," added Dolat Capital. Overall, A&P spend for Havells is a more modest 4.5% of revenues.

Ebit is short for earnings before interest and tax.

Other business segments have put up a good show as well. Revenues from lighting & fixtures and electrical consumer durables (ECD) segments increased 25% and 33%, respectively. Market share gains and good growth in the fan categories boosted the ECD division.

Edelweiss Securities Ltd maintains that it is confident of Havells sustaining its premium positioning in the fans segment. However, “ramp up of smaller product categories in the ECD segment remains a key monitorable over the medium to long term," added the brokerage in a report on Friday. Lightning revenues exclude revenues from Energy Efficiency Services Ltd (EESL) projects. EESL business declined sharply on a year-on-year basis reflecting its lumpy nature.

Overall, Havells’s Ebitda margin came in at 12%. Ebitda is short for earnings before interest, tax, depreciation and amortization. Net profit increased by 73% to 210 crore.

Investors are sitting on good gains. So far this financial year, Havells India shares have appreciated by about 15%. Valuations, though, suggest much of the optimism is baked into the price. At its current price, the stock trades at about 41 times estimated earnings for this year. For investors, how Lloyd’s business shapes up would be a key measure to track. Havells will also benefit from a pick-up in the real estate sector.

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